Brazil’s Temer gets down to messy job of saving economy

Fresh off his predecessor’s impeachment, Brazilian President Michel Temer is launching reforms meant to save the tanking economy, but his austerity plan risks triggering backlash — including among his allies.

The center-right president was sworn in on August 31 to serve out the rest of predecessor Dilma Rousseff’s term, after she was removed from office on charges of illegally manipulating the government’s accounts.

The impeachment drama ended 13 years of leftist rule in Brazil amid the worst recession in 80 years.

Temer, the former vice president, is promising to get things back on track for the Latin American giant with pension and labor reforms, lower budget deficits, and a smaller role for government in the economy.

But he got his new job thanks partly to congressional backing from parties that now have their eyes on local elections in October and fear voters’ wrath over unpopular austerity cuts.

The Temer administration has already introduced a constitutional amendment in Congress that would set a ceiling on government spending for the next 20 years.

The proposal would cap spending increases at the annual inflation rate, including for health and education.

It is harsh but necessary medicine, say economic analysts such as Claudio Frischtak, a former World Bank economist.

“It’s the government’s absolute priority. Putting a ceiling on public spending will make Congress and society rethink the state, its size and its expenditures, because we are reaching an unsustainable budgetary situation,” Frischtak told AFP.

But it won’t be easy, he warned, especially in the wake of Rousseff’s divisive impeachment battle.

“It’s already difficult for any government to do in ordinary circumstances. For a government that has just arrived after this traumatic process, it will be twice as hard,” he said.

Temer’s popularity rating is about as bad as Rousseff’s — 13 percent. He has the backing of the markets, but faces a climate of general disgust with politicians after a massive corruption scandal centered on state oil company Petrobras.

Spending cuts are also a touchy subject in a country riven by inequality, where large social programs helped tens of millions of people escape poverty since the left came to power in 2003.

– Step one: privatization –
The first step comes Tuesday, when the Temer administration will start its push to reduce the state’s role in the economy by announcing a series of newly privatized infrastructure concessions.

Next up will be reforms to raise limits on working hours and increase the retirement age — both controversial.

The government has already been forced to backtrack, after Labor Minister Ronaldo Nogueira announced the working week would be extended from 44 to 48 hours, with days of up to 12 hours.

After outcry from unions and Rousseff’s ousted Workers’ Party, the government said his remarks had been “misinterpreted.”

But Temer also faces pressure in other quarters not to water anything down.

The Social Democratic Party (PMDB), a center-right ally with its own presidential ambitions for 2018, has warned it will not back reforms that only go halfway.

“It’s useless to be popular and make nice. If bitter measures need to be taken, they need to be taken,” said Senator Paulo Bauer.

“We have 12 million unemployed. Governors and mayors with huge problems…. Industry and trade are suffering and civil servants are demanding raises. There’s no way to deal with that if we don’t turn the game around,” he told AFP.

The budget situation is urgent. Pension spending is ballooning because retirement benefits, like the minimum wage, are pegged to inflation — 10.7 percent last year.

Primary expenditures, before interest payments, have risen from 10.8 percent of GDP in 1991 to 19.5 percent last year.

Brazil’s economy shrank 3.8 percent last year and is facing another three-percent contraction this year. Public debt has meanwhile gone from 52 percent of GDP in 2013 to more than 66 percent today.